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From The Socialist newspaper, 14 September 2011

Austerity policies strangle growth

Socialism Today editor Lynn Walsh looks at the effects of Con-Dem cuts on the UK economy.

Slump in demand

Pawn shops are booming, pound stores are multiplying. But spending on services and retail (apart from food) has slowed to a standstill.

The head of Co-operative stores, Peter Marks, warns that "beleaguered retailers are facing the worse conditions in 40 years" (Evening Standard, 25 August).

Personal and household incomes have been squeezed by frozen wages and job losses. At the same time, a higher proportion of incomes is being swallowed by rising petrol prices, outrageous gas and electricity bills, dearer food and 20% VAT.

Is it any wonder that consumer spending, which accounts for two-thirds of growth in the economy, is sliding downwards?

Real disposable household income (HDI) - income available after rent, mortgage, etc - fell 0.8% in 2010. This is the first fall since 1981, when real HDI fell by 0.2%.

The Centre for Economic and Business Research predicts that HDI will fall by 2% this year. This is a sharper fall than in the 1930s.

On average each household will lose 910. Altogether this will take 27.3 billion out of the economy.

Such a sharp slump in demand points towards a downward spiral of reduced profits, falling investment, and declining production.

Referring to a "double dip", Marks, the Co-op chief, said "the reality is that we never really came out of the first dip."

Cuts or stimulus?

George Osborne, the Con-Dems' economic 'wizard', is like a quack doctor bleeding a weakening patient.

His savage austerity measures, with 81 billion spending cuts, are weakening the pulse of the British economy.

Growth of GDP fell to a pathetic 0.2% in the April-June period. Output is still 4% below its early 2008 peak.

Osborne has been forced to admit that his 1.7% growth target for 2008 will not be met.

The target for balancing the government's budget - an absurd objective during a worldwide recession - has already been put off for a year, to 2015-16.

All the Con-Dems' targets and plans will be wrecked by the renewed economic downturn now being forecast by the major economic agencies, like the Organisation of Economic Cooperation and Development (OECD), International Monetary Fund (IMF) and United Nations Conference on Trade And Development (UNCTAD).

Osborne claims his policies have been "completely vindicated" by events. Why? Because Britain is a "safe haven in the sovereign debt storm".

Unlike in Greece, Italy, Spain, etc, British government borrowing has not come under speculative attack from marauding bond traders.

Speculative selling pushes bond prices down, thereby raising the rates of interest these governments have to pay to borrow money.

But bond traders are fickle friends. In March, one of the rating agencies, Moody's, warned that if the stagnation continued, Britain's top AAA rating would be downgraded - as has already happened to the US.

If the national income declines, the burden of debt will inevitably increase. Even the head of Pimco, a big bond trader, recently called for "at a minimum fine-tuning and perhaps a re-routing of the plan" being advocated by Osborne (Financial Times, 6 September).

Blind devotion

There is no doubt of Osborne's devotion to "market forces", an alias for the big finance houses and speculators who play the market for profit.

But some of Osborne's former fans are beginning to question his blind devotion to austerity measures.

John Cridland, head of the CBI, said that "Osborne needs to 'step up a gear' and deliver a game-changing growth plan" if he is going to revive the growth of the flagging British economy (FT, 5 September).

Osborne claims that the IMF endorses his austerity policy. But Christine Lagarde, the IMF's new head, is calling on major European economies to implement "short-term stimulus measures" (more public spending), while continuing medium-to-long-term debt reduction.

The strategists of capitalism fear that the system is sliding into another crisis, as bad or worse than 2008.

In May, the OECD's chief economist said Britain might have to slow the pace of cuts. Recently, the head of the National Institute of Economic and Social Research, Jon Portas, said: "The sensible thing to do now... would be a modest loosening of fiscal policy". In other words, ease off on the cuts.

Facing the threat of prolonged depression, big business is divided on economic policy. The Con-Dem government will be torn apart by the failure of its quack remedies.

But what policy would be in the interests of workers, the majority of society? "Fine tuning" and a little "loosening" of fiscal policy - essentially Labour's 'alternative' - will not make much difference.

Infrastructure

CBI chief Cridland is calling on the government to stimulate growth by investing in infrastructure: transport, power, housing, etc.

Among other things, this could unlock cash reserves currently being hoarded by big business. (He also calls for more tax concessions to big business and the super-rich, and further attacks on workers' rights.) This is a policy for industry and construction rather than finance capital.

For working people, trade unions should campaign for a massive programme of public works. It should embrace the building or refurbishment of infrastructure, especially houses, schools, hospitals, public transport, community facilities, and green energy production.

The projects should be planned and supervised by democratically elected committees of trade unionists, community groups and the wider public.

Workers' wages, conditions and rights should be dramatically improved, not undermined.

There should be no question of bribing big business to participate through subsidies and tax concessions.

If the big corporations are not willing to participate in such a plan, they should be nationalised - with compensation only on the basis of proven need - and run democratically under workers' management.

The banks, which have so far failed to provide the credit for a broad economic expansion, should also be taken over and run in the public interest.

This policy, which would need mass working class backing, would provide a way out of the crisis. Otherwise, under the dictatorship of the capitalist market, we face a downward spiral of stagnation, mass unemployment, even worse inequality, and mass impoverishment.

'March of the makers' slams into reverse

The British economy will be "carried aloft by the march of the makers", Osborne, the Con-Dem chancellor proclaimed in his March budget speech.

Last year, manufacturing did grow modestly, with exports helped by the falling value of the pound. But this trend has slammed into reverse, with a 0.5% fall in April-June.

The CIPS/Markit manufacturing survey in August shows an even sharper decline: "The second half of 2011 has so far seen the UK manufacturing sector, once the pivotal cog in the economic recovery, switch into reverse gear."

Demand for manufactured goods at home has plummeted, because of squeezed incomes, higher VAT, and pessimism about the future.

Besides, there's a worldwide slowdown in major export markets. Growth in Japan (hit by the tsunami and nuclear disaster), the US, and the big European economies has ground to a halt, tipping from stagnation to downturn.

China has also slowed, with a reduced demand for manufactured imports. The unresolved crisis in the eurozone has aroused fears of a new twist in the banking crisis.

The feeble global 'recovery' of last year has given way to a new phase of the recession which began at the end of 2007.

This is the bleak reality of the globalised, crisis-torn capitalist economy. Yet Osborne still claims that, under Con-Dem leadership, Britain will be an island of recovery and growth.

Investment strike

A resurgence of manufacturing would require massive investment in new plant and processes. To break into international markets, exporters would have to be at the cutting edge of new technology.

With only a few exceptions, however, the big corporations are hoarding their cash rather than investing it in new capacity and jobs.

While many working families are weighed down with debts and small businesses are starved of credit by the banks, the big corporations are sitting on huge piles of cash.

British companies, according to the Economist, are sitting on reserves equal to 6.2% of GDP. This - cash left over after new investment and payment of interest, tax etc - amounts to around 90 billion, twice the amount needed to create enough green jobs for the 2.5 million people unemployed in the UK, based on an estimate by climate change campaigners.

Rolls Royce, for instance, has a cash pile of 2.9 billion (or 1.5 billion net of debts). These reserves are invested in money markets.

It's cash that could be used to expand new industries - for instance, renewable energy equipment - and create hundreds of thousands of jobs.

Instead, there is a corporate investment strike. The collapse of private sector investment since 2008 accounts for 45 billion of the total 56 billion fall in national income.

Yet, while many working families are weighed down with debts and small businesses are starved of credit by the banks, big businesses have continued to make massive profits, mainly through "cost cutting". They have squeezed more work from fewer workers, pushing down pay levels as well.

But they have little or no confidence in the future of their own system. They don't believe major new investments would return the level of profits they want.

Globally, they fear endless political upheavals and prolonged economic depression. Instead of building new means of production to meet the needs of society, they prefer to hand out their cash to executives and shareholders and to sit on huge piles of cash.

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In The Socialist 14 September 2011:


Socialist Party features

We need a programme of action to fight back!

Austerity policies strangle growth


Socialist Party youth and students

Pampered politicians plan education massacre... STOP THEM!

Low pay and the housing crisis

Youth must join pensions struggle

EMA cuts: doors close on our future

Cuts hit young people hard in Hastings


Stop attacks on pensions

Hands off our pensions!

NHS pensions - Pay more, work longer and get less!


Socialist Party workplace news

Bombardier

Support Wyndeham workers

No to pay cuts in Carmarthenshire

Workplace news in brief


International socialist news and analysis

How can the national rights of Palestinians be achieved?


Socialist Party news and analysis

NSSN calls on TUC to open the floodgates of mass action

Nationalise the banking system!

Childcare costs push parents into hardship

Save our NHS

Fast news


Socialist Party review

Power and terror


Socialist Party reports and campaigns

Save Surrey libraries!

Bristol: Labour's short-lived valour

Hundreds march against Dale Farm evictions

May Day protest case goes to Strasbourg


 

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